Welcome to the Fourth Quarter Earnings Call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Wednesday, February, 18, 2009 will be webcast and recorded. I would now like to turn the conference over to our host, President and Chief Executive Officer, Dr. Joseph Morone. Please go ahead, sir.

Thank you, Sean. Good morning, everyone and welcome to the Albany International Q4 2008 earnings call. As always, I'll open with a commentary, and then our Executive VP and CFO, Michael Nahl will provide some amplifying comments and then we'll get into Q&A. Before we start, let me just give you a quick overview of how we're looking at this release, because we know this is a very complex quarter. It's going to take you quite a bit of time to work your way through the numbers. Please take as much time as you need on the call with questions, and we'll take as much time as necessary to answer those questions. We are confident that when you work through all the numbers and work through the details of this very complex release, as you'll come to the same place that we're at, and where we're at is something like this; number one, we are confident that we are taking the steps necessary to deal with this recession and to leave us going into 2010 in a very strong position. Number two, our timing on our restructuring has not changed. We have been talking about a three-year restructuring process that ends this year. We are still talking about a restructuring process that ends this year. We are still looking at clean numbers by the end of the year, good cash flow by the end of the year. What has changed because of the recession is the scale of the restructuring that we'll go through this year. But that means that the magnitude of the cost savings and the magnitude of the cash generation potential of this company by the time we get through the restructuring and are into 2010 is all the greater, all of which means we expect to…

Good morning. We refer you to the comment about forward-looking statements which is contained in the press release and we note that the same statement applies to our remarks in this conference call. In the fourth quarter despite the strong headwinds of a crashing global economy, sharply lower sales in a majority of our businesses, and the Eclipse bankruptcy, our fourth quarter net cash provided by operating activities increased to $52 million in comparison to $42 million in the fourth quarter of 2007. And our leverage ratio as defined in our principal credit agreements improved again to 2.54 at year-end 2008 from 2.82 at the end of the first quarter of 2008, 2.80 at the end of the second quarter and 2.62 at the end of the third quarter of 2008. The cash from operations improvement in the fourth quarter reflects both continuing improvements in our cost structure and good progress by our team in reducing accounts receivable and inventories. Excluding the effect of changes in currency translation rates and provisions for bad debt, accounts receivable declined $10 million in the quarter, and inventories declined $9.4 million. Net debt declined during the fourth quarter by $16.4 million. For the full year net debt increased from $362.6 million to $389 million mainly as a result of the $129.5 million of capital expenditures in 2008 and the high cost associated with the second year of the three-year restructuring program. As of December 31, 2008, cash was $106.6 million, and the cash surrender value of life insurance policies was $47.4 million or a total of $154 million, that compares with a total debt of $543 million. Fourth quarter interest expense net was $5.3 million in 2008, compared to $4.3 million in 2007 due principally to the higher average borrowings in 2008. Even though…

Certainly. (Operator Instructions). And first from the line of Arnie Ursaner with CJS Securities. Please go ahead.

Good morning, it's Jason Ursaner for Arnie.

Hey Jason, good morning.

Industry data from Europe indicated as much as a $1 billion in PMC inventory, did you add customers? Do you have any sense of your levels of inventory of customers?

In Europe, we're on a make and shift basis. So there isn't an accumulation of inventory and the customers. In Asia, if you're looking for examples of markets where there are likely to be build ups in inventory of our products or our industry's products with our customers, I think the place where there may be an issue within Asia, because as of October they were still in a rapid growth mode and so still expanding capacity and raw materials and finished goods inventory ahead of demand. By November that market was crashing, and so they are likely to be stuck with more inventory than... which will slowdown a recovery there from our industry's point of view, but no, Europe is make and shift.

Okay. And I know PMC is used for all types of paper which is being impacted cyclically, however certain types such as newsprints, new magazines you are probably seeing net over decline, can you see what's your exposure at various paper markets?

It's interesting that we are fortunately least exposed in the most vulnerable segment which is newsprints, primarily centered in Canada. We are especially strong in tissue and craft and it's actually has enough side an awful lot of new product development activity on the tissue side, where we have very strong share, working with the best customers in the world we're really on some innovations there. I think the bigger... the long-term sectoral decline in newsprint is not the story for us. The story for us in '09 and in Q4 is really the more general global recession, and if you think about our strength in craft which is where the boxes come from for shipping, that's the bigger issue, that's the bigger impact of the recession on us. We're not unlike a couple of our largest competitors we're not nearly as exposed on the newsprint side as some other people are.

All right. In Albany Engineered Composites, axe the one-time Eclipse charge. The segment still had about $4 million operating loss. Is there... what should make this improve on a quarterly basis, given a 15% overall decline in segment revenue as opposed to development cost on them?

What's going on in Composites is there are some changes of pulse above the surfaces and above the surface that are visible to investors and changes below the surface that aren't above the surface. We have a number of legacy customers, mostly coming out of the old Texas composites business. That, where we are supplying parts for business jets, for the smaller end of the aircraft spectrum or engines for the, engines, parts for engines and parts for the fuselage of smaller aircraft and that segment is the one that has been hit hardest by the recession. And so when you see these top-line declines in AEC, that's really what's driving it is order of ramp downs or production ramp downs by the makers of business jets. Underneath the surface what you don't see is and which we can't really talk about for confidentiality reasons though we would love to is increasing possibilities and probabilities of new development contracts for future projects on new parts of the engine, on new engines, on new parts of the fuselage and in some really exciting defense applications that we can't talk about. Now, we made an accounting change, the change in our accounting treatment of these program investment expenditures that brought us more in line with standard aerospace industry practice, which is we're now be... as of Q4, we are capitalizing the program, development program investment expenditures. So you won't, while they have a cash effect which we cover, most of the cover in CapEx. You won't see an income effect of that growing activity and program investment which was what really drives the future annuities and cash flows of this business. So sum it all up, the top-line is being affected by declines in some of the legacy programs. Our underlying enthusiasm for the business is growing, because of the growing array of possibilities on the program investment side. We are able to scale back our costs on the production side. We have to do that which is minimizing the impact on the bottom-line of these production ramp downs. But because we're capitalizing the program investment, we're able to ramp that up without hitting the bottom-line, which means that if things work the right way on an EBITDA basis, this business should be close to breakeven in 2009.

Okay, great.

All winded answer, but it's not a complex at all. Everything about this quarter is complex. So I'm afraid a lot of our answers, Michael and my answers are going to be a bit more on winded.

That was what I was looking for and I think you're close to $2.8 million expense related to SAP implementation in the quarter?

Jason, we just lost you a bit, could you repeat that?

I think you had around $2.8 million expense related to SAP implementation in the quarter, is there anything you can update us on expected SAP implementation cost--

We should see a decline in those expenditures, they will continue into 2010 but they will be substantially lower than they were in 2009, in 2008 substantially lower.

All right. Thanks a lot, sir.

Our next question is from the line of Paul Mammola with Sidoti & Company. Please go ahead. Paul Mammola - Sidoti & Company: Hi, good morning guys.

Hi, Paul.

Hi, Paul. Paul Mammola - Sidoti & Company: I'm not sure if you can comment, but can you give us a general sense of how much of the core PMC top-line decline was price versus volumes so excluding currency?

Mostly volume, in fact that's really the story right now, the recessionary effect is the volume effect swaps to price effect. There was some price effect mostly in North America because of the washing in of the effect of what for us is successful contract negotiations. We'll see a gradual decline in price in Europe in 2009, as we always do after major contract negotiations, but as I alluded to you in my commentary we were very happy with other contract negotiations that turned up very different from two years ago. And we should see if we weren't in recession we'd see volume increases offsetting the prices, volume increases and cost reductions offsetting the price declines. Paul Mammola - Sidoti & Company: All right, okay. So is there a general sense of what industry pricing is in terms of may be competing customers, improving price at this point, have you seen any of that?

Could you ask that one again Paul and quick? Paul Mammola - Sidoti & Company: Sure, sure in terms of general industry pricing, there was a thought that competitors may be raising price to improve their own financial condition. Have you seen any of that or is it more just stable low pricing at this point?

I would characterize that at this point as stability in a recession it's deep. People will start getting desperate, they always do in every industry and some will start try to price at the margins. But remember the big periods of instability occur when the window for contract negotiation is open and the contract negotiation windows are shut right now. So at the margin there will be some pricing stability but we're in a really predictable environment on the price side for the next couple of years because of the contracts. That's not to say they won't glide downward but they're... that uncertainty about prices just isn't there right now. Paul Mammola - Sidoti & Company: Okay. That's very helpful. And then--

There's another big swing Paul and-- Paul Mammola - Sidoti & Company: Sure.

And I think it's worth mentioning even though there is a lot of uncertainty around it. There's two ways that this recession can go; one, is we start to see a gradual recovery late near beginning next year. And the other is this thing is longer than anybody is willing to admit now. I am not just talking about paper industry, I am talking about the global recession because basically particularly on the, in the growth markets, the economy drives the paper industry. When you get exports going in China, you get a healthy paper industry. So if this thing goes longer than a year we are going to start seeing some major second order effects and the second order effects are consolidation, up and down the supply chain. And we will see it among our customers, we'll see it in our industry, we'll see it in our supply base. And this is going to become a very devonian (ph) process in which only the strong survive, that's the consequence of the kind of recession this is starting to look at. We are very confident that we're going to go into the, we are going to get through '09 fine. We're going into 2010 in a strong position. If this thing is longer than people think there will be consolidation or has to be. And we'll be on the good side. It will be on the favorable side of that consolidation. Paul Mammola - Sidoti & Company: Sure. Hopefully--

It has the biggest effect possibly on pricing I think. Paul Mammola - Sidoti & Company: No, definitely. And then is there a sense that there could be meaningful impacts from polymer price improvement given what raw materials have done recently in the first half of '09 I should say?

Yes. Paul Mammola - Sidoti & Company: Okay. And then finally, on the, I know you did that utilization at Hangzhou is that, going to be a comparable work charge, which you say through the first three quarters of around $1million?

We expect that plant to be fully running by the end of the second quarter. But, and so it's ramping up, so I would expect the charges to decline through the first two quarters. Paul Mammola - Sidoti & Company: Okay, perfect. Thanks for your time.

We're still, we are expecting clean numbers by the end of the year. Because the restructuring will be behind us and that includes the ramp up of these Asian plants. Paul Mammola - Sidoti & Company: Looking forward to those clean numbers. Thanks again.

(Operator Instructions). And we'll go to the line of Ned Borland with Next Generation. Please go ahead.

Hi, good morning, guys.

Hi, Ned.

I joined late, so I apologize if you covered this already, but Joe I think in the past we've talked about the competitive environment and that there's been some contract negotiations that would sort of stabilize things. But as the world fell of a cliff in the fourth quarter, has there been any meaningful changes in the competitive environment in PMC?

Ned, were you on for the last... for Paul's question?

I just got on.

Okay, all right. So let me try to give you a recap. In the short term, in Q4 the primary change in the competitive environment was that we concluded very successfully the contract negotiations with the two largest paper makers in Europe. And they both were big deal and had a significant impact on the landscape in Europe going forward. The pricing was relatively stable, the big effect in Q4 and we think the big effect in '09 is the volume effect. And since there won't be, unlikely to be any major contract negotiations in '09 that window for instability we always talk about will be pretty much shut. There will be gradual glide down in pricing in Europe because of the contract negotiations, but if we weren't worried about the recession, we'd certainly see those declines offset by volume decreases and cost reductions. As mills shutdown, there will be a differential effect on the different competitors and so some competitors will try I think to grab some business by pricing at a margin, but again with the window for contract negotiations closed, there's only so much of that, that can occur. So we don't expect the kind of pricing stability we have seen before and then going forward the big story is volume. The point I tried to make with Paul was if this recession, if the global economy starts bouncing back in the second half and first approximation the paper industry does follow the global economy, if you just think about all important craft sector, that's driven heavily by export activity in Asia by shipping activities or economic activity because all those are all boxes. So if the economy starts to recover in the second half of the year, then I think everybody comes out of this, our customers, PMC, our suppliers without any major structural change and we are still in the same competitive dynamic we were in before. If on the other hand, which is probably more, which we think is more likely, this recession, the global economic recession extends past 2009 into 2010 then the likelihood of consolidation gets higher and higher, up and down the supply chain on our customers, in our industry, in our supply chain, among our suppliers. And this is going to be very devonian process, the strongest players, the largest players, the players with the best balance sheets are the ones that are going to do best. Everyway we look at this, we are going to be on the right side of that devonian process. And that's the silver lining in this recession. It lasts long enough and we do what we need to do which we tried to lay out in this release. And I think odds of consolidation start to increase.

Okay, thank you.

And our next question is from the line of Will Nasgovitz with Heartland Fund. Please go ahead.

Hi, good morning. Thank you for taking my questions. Mike, you covered the debt-to-EBITDA ratio. I appreciate that, what is the threshold level that you have, did you state that?

Yes, the threshold level is 3.50.

And did that ramp down or that stays consistent?

It stays up through the end of 2010.

Okay. And Joe you mentioned in your prepared remarks and also in the press release that I guess pro forma EBITDA was better than last year, what is the actual number, did you state that?

Well, it's non-GAAP. So you got to do the math. If you go to the--

It's okay, all right.

I'll tell you this, what we in the press release gross margins are up, if you look at EBIT, if you look at STG&R expenses both in absolute terms and as a percent of sales they are down, again you have to do the math.

Yeah, I understand, I just. Okay, and final question you have obviously still some optimism for the Composites business, in the past conference calls you've articulated a potential revenue goal in future years out, and I am just curious what percent of that revenue goal included Eclipse we'll just assume they don't come back what percentage what will they of that goal I guess?

They were... they accounted for a jump-up in sales in the short-term. They accounted for less than... about 5% over the long-term potential.

Okay.

They were--

Thanks for your time.

Long-term but in the short term they were a big and could still be they were a big customer. And so, this business has two halves to it, there are the legacy programs that were giving us the short-term revenue and then there are these longer term program investment development programs which really create all the future in the way we strength this.

Actually, I have one more quick question for you. I know you guys that you haven't been active buying back stock, I think you still have an authorization still in place and I recognize that 2009 being the economic landscape might not be the year to be, obviously buying a stock given that the cash is king here. But as the year progresses and hopefully things pick-up in the economy and the cash and grow strategy takes hold, is that a priority for the company in terms of buying back shares at this level?

I have seen best use short-term is paying down debt. What we've told investors before and we still feel strongly about this is by the time we are in the third quarter 2010 we're pretty much optimized, our portfolio of businesses is optimized. And then it's really all about how do you maximize shareholder value and there are all kinds of possibilities in that point and we're not ruling anything out.

Okay. Thanks for your time.

Thanks, Will.

And we do have a follow-up from the line of Arnie Ursaner. Please go ahead.

Hi, it's Jason here. In your prepared remarks--

Hi, Jason.

You mentioned PMC customer is willing to test the new products?

Yes.

That were trials from the R&D pipeline?

Right.

Can you expand on those trials at all and may be the effect it could have on segment margins?

Yes. It's always tough to answer these questions because we don't want to...our, for my competitors Jason on our calls and so we got to be careful what we say. But in each of our product lines forming, press, drying, shoe press belts, transbelts, we have one or two or three new products coming out of the pipeline as we speak. And they will have... I can't tell you that they it's going to be effect on the numbers will vary and in some cases it counteracts what otherwise would be price erosion. In some cases it leads to increase share and in other case it leads to an actual improvement in pricing. You just have to go case-by-case and it really depends on the structural dynamics of the market. I'll just give you some quick examples. There is a machine in Europe in Northern Europe, Scandinavia that just broke the world record for run-rate for speed, it's a fine paper machine. We were running our products on there and one of our key new products was running on that machine when it broke the world speed record. There is a new start-up which are rare these days in Southern Europe, another a world-class reference machine and we have, we are going to have very strong share in that machine. And it's because of the technologies not because of price. And again a couple of our really important new products, at least one of our major new products will be running on that start-up. I alluded to on earlier in my comments in one other question is there's a awful lot of innovative activity going on across the board for us in tissue and tissue related industries. And some really interesting innovative work going on tightly connected with our customers, and the customers are also mainly in the tissue business. So I think that this is one of the reasons where we're pretty optimistic even in the face of what's likely to be based on November, December, January of 13% to 15% down top-line is there is a lot of redundant product line.

Okay. Thanks a lot.

We've no further questions in queue. I'll turn it back to the presenters for any closing comment.

Thank you all for participating on the call and hanging in there with us as you work through what is a complex quarter. Michael and I look forward to meeting with you at conferences. And thanks for joining us, see you next time.

Ladies and gentlemen, a replay of this conference call will be available at the Albany International website beginning at approximately noon Eastern Time today. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.